The SRB publishes the new MREL Policy 2024

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After a consultation phase held between December 2023 and February 2024, the Single Resolution Board (SRB) is presenting changes in its new MREL (Minimum Requirement for Own Funds and Eligible Liabilities) Policy.

We have looked at the changes and highlighted the most important aspects which we have summarized below.

MREL for Liquidation Entities

Until now, a MREL ratio in the amount of the Loss Absorption Amount (LAA) was required for Liquidation Entities. In the future, no MREL will be set for Liquidation Entities, except where the SRB assesses that MREL is justified in an amount exceeding the LAA to strengthen financial market stability, mitigate contagion risks or ensure the financing of deposit protection.

Adjustments to the Market Confidence Charge (MCC)

As already established, the MCC is added to the Recapitalization Amount (RCA) for Resolution Entities as an additional buffer for market confidence and only relates to MREL-TREA (total risk exposure amount). After a phase-in period of several years, the MCC was previously calculated as the difference between the Combined Buffer Requirements (CBR) and the Countercyclical Buffer (CCyB). With the new MREL Policy 2024, it will be possible for resolution authorities to further reduce the MCC, considering the progress made in terms of resolution planning activities.

For Non-resolution Entities, an MCC is determined under the following conditions:

  • for an operating bank that is a direct subsidiary of a holding company identified as a Resolution Entity, applying the same calibration level as for the Resolution Entity; or
  • where the SRB concludes that the MCC is necessary to sustain market confidence because of the subsidiary’s strong reliance on wholesale funding or its designation as an Other Systemically Important Institution (O-SII).

For Resolution Entities and Non-resolution Entities, a reduction of the MCC of up to 80 % of the statutory default level is possible.

MPE deductions for Non-EU Resolution Groups

When determining MREL for groups with a multiple point of entry (MPE) strategy, so-called MPE deductions for exposures to Non-EU Resolution Groups are translated into MPE add-ons. The SRB allows surpluses in Non-EU Resolution Groups to proportionally reduce the add-on on a case-by-case basis. The SRB may allow the inclusion of such surpluses for the purpose of loss absorption or recapitalization only if they are located in third countries with a legally enforceable resolution framework.

MREL eligibility checks

As already announced in the consultation paper, the SRB aims to improve MREL eligibility in the future. So called MREL eligibility checks will be carried out in the form of self-assessments. The SRB will provide specific templates for this purpose.

For further details, please refer to SRB’s press release.

If you have any questions or would like to discuss the new MREL Policy 2024 and its impact on your institution, please get in touch with your KPMG experts.